Innofactor Plc's Half-Yearly Report for January 1 July 30, 2018 (IFRS)

Transcription

1 HALF-YEARLY REPORT Q2/ (24) Half-Yearly Report July 24, 2018, at 9:00 Finnish time 's Half-Yearly Report for January 1 July 30, 2018 (IFRS) In the second quarter, the net sales have returned almost to the same level as in the comparison period; corrective actions to improve profitability have been made and are expected to have a positive effect in the third quarter January June 2018 in brief: The net sales were approximately EUR 33.5 million (2017: 34.4), which shows a decrease of 2.7%. The operating margin was approximately EUR 0.4 million (2017: 1.5), which shows a decrease of 74.3%. The operating loss was EUR 994 thousand (2017: operating profit 119), which shows a decrease of 935.3%. The weaker than expected profitability was contributed to by the lower than expected net sales. Innofactor got several significant orders in the first half of the year, for example, HAIPA for the Legal Register Centre, approximately EUR 2.0 million; Swedish adult educational association Folksuniversitet, approximately EUR 0.5 million; the Swedish Teachers Union Lärarförbundet, approximately EUR 5.2 million; and the trade union Kommunal, EUR 2,8 million at the minimum and EUR 5.2 million at the maximum. April June 2018 in brief: The net sales were approximately EUR 17.0 million (2017: 17.1), which shows a decrease of 0.8%. The operating margin was approximately EUR 36 thousand (2017: 567), which shows a decrease of 93.7%. The weaker than expected profitability was contributed to by the lower than expected net sales. The operating loss was EUR 630 thousand (2017: -103), which shows a decrease of 511.7%.

2 HALF-YEARLY REPORT Q2/ (24) Apr 1 Jun 30, 2018 Apr 1 Jun 30, 2017 Change Jan 1 Jun 30, 2018 Jan 1 Jun 30, 2017 Change Jan 1 Dec 31, 2017 Net sales, EUR thousand 17,010 17, % 33,480 34, % 65,666 Growth of net sales -0.8% 12.6% -2.7% 15.4% 10.1% Operating profit before depreciation and amortization (EBITDA), EUR thousand* % 376 1, % 1,308 percentage of net sales* 0.2% 3.3% 1.1% 4.3% 2.0% Operating profit/loss (EBIT), EUR thousand* % % -1,461 percentage of net sales* -3.7% -0.6% -3.0% 0.3% -2.2% Earnings before taxes, EUR thousand* % -1, % -1,579 percentage of net sales* -4.6% -1.3% -3.8% -0.4% -2.4% Earnings, EUR thousand* % -1, % -2,007 percentage of net sales* -4.5% -1.1% -4.4% -1.3% -3.1% Net gearing 58.0% 49.4% 58.0% 49.4% 53.8% Equity ratio 42.6% 43.3% 42.6% 43.3% 43.4% Active personnel on average during the review period** % % 610 Earnings per share (EUR) % % *) In accordance with IFRS 3, the operating result for April 1 June 30, 2018, includes EUR 507 thousand (2017: 507) in depreciations related to acquisitions, consisting of allocations of the purchase price to intangible assets. In accordance with IFRS 3, the operating result for January 1 June 30, 2018, includes EUR 1,015 thousand (2017: 1,015) in depreciations related to acquisitions, consisting of allocations of the purchase price to intangible assets. **) The Innofactor Group monitors the number of active personnel. The number of active personnel does not include employees who are on a leave of over 3 months. Innofactor s future outlook for 2018 Innofactor s net sales and operating margin (EBITDA) in 2018 is estimated to increase from 2017, during which the net sales were EUR 65.7* million and operating margin was EUR 1.3* million. Innofactor monitors the result development actively. *) The net sales and operating margin for 2017 have been adjusted in accordance with the IFRS 15 standard. A separate release on this was published on May 7, 2018.

3 HALF-YEARLY REPORT Q2/ (24) CEO Sami Ensio's review: We estimate that a turn in the business took place during the second quarter, and this should manifest itself as improved profitability in the third quarter The net sales in the first half of 2018 were EUR 33.5 million, which shows a decrease of 2.7 percent from the last year. The operating margin (EBITDA) was EUR 0.4 million (1.1 percent of the net sales), which shows a decrease of 74.3 percent from the last year. The result was significantly lower than the goals we had set. Especially in the second quarter, we made plenty of corrective actions, and we estimate that they will significantly improve our profitability in the second half of the year. For example, at the end of the review period, Innofactor had 29 employees (4.7%) less than a year before, which is estimated to have a significant positive effect in the profitability of the third quarter. In Innofactor s history, the end of the year has typically been better in terms of operating margin than the beginning of the year also in other respects. However, raising the profitability to the target level still requires special attention. We have made remarkable progress in implementing Nordic operating models and systems, and this has had a positive effect in controlling the company's operation. We implemented the common ERP system in Sweden at the beginning of July Now the system is in use in all countries. During second quarter remaining Lumagate companies in Sweden and Norway have been rebranded under Innofactor brand and all Group brands have been now unified. Innofactor's vision is to be the leading implementer of cloud solutions and digitalization in each of the Nordic Countries. We believe in our chosen Nordic strategy and in reaching our long-term goals. This requires perseverance and determination from the company's management and employees as well as investors. Innofactor is still actively looking for new strategic partnerships in the Nordic Countries. The Group s goal is to grow both organically and through acquisitions. Strategy and its realization in the review period Innofactor is the one of the leading implementers of cloud solutions and digitalization in the Nordic Countries. Innofactor has the widest solution offering and leading know-how in the Microsoft ecosystem in the Nordic Countries. Innofactor has approximately 600 enthusiastic and motivated top specialists in Finland, Sweden, Denmark and Norway. Innofactor's customers include over 1,500 companies and public administration and third sector organizations. During the years , Innofactor will primarily strive to unify its operating model and offering in the

4 HALF-YEARLY REPORT Q2/ (24) Nordic Countries in its selected areas. Unifying the offering may take place either through organic growth or selected acquisitions. Innofactor's mission: We empower organizations and people to make a difference in the digital world. Innofactor's vision: We are the leading implementer of cloud solutions and digitalization in each of the Nordic Countries (Finland, Sweden, Denmark and Norway). Innofactor's strategy for achieving this vision includes: The best Nordic professionals in the Microsoft ecosystem The leading offering in cloud solutions and digitalization A proactive, value-adding and flexible delivery model Spearhead customers in selected fields in the Nordic Countries Innofactor's long term financial goal is to grow profitably: To achieve annual growth of approximately 20 percent, most of which should be organic To achieve approximately 20 percent operating margin (EBITDA) in relation to the net sales To keep the cash flow positive and to secure solid financial standing in all situations In the review period of January 1 June 30, 2018, Innofactor's net sales decreased by 2.7 percent. The company did not reach the goal it had set for organic growth. Innofactor's operating margin (EBITDA) in relation to net sales was 1.1 percent in the review period of January 1 June 30, This is low and very far away from the set target level of 20 percent. The main actions for reaching the approximately 20 percent growth and 20 percent operating margin: In the Nordic Countries, we will focus on those fields and customer segments, which have great growth potential, such as social services and health services. We will improve sales of our products and services to existing customers in order to get a greater share of the budget the customers are using for digitalization. We will invest in using modern digital marketing methods to improve our sales.

5 HALF-YEARLY REPORT Q2/ (24) We will concentrate on management of know-how, recruiting, and resource optimization in the Nordic level. We will move the focus in our offering and net sales more and more to products and productized services. We will continuously improve our specialists' skills, so customers will be willing to pay a higher than the average price on the field for them and our leading offering. We will develop our flexible delivery model, which enables fast added value, in such a way that the amount of unnecessary work is being minimized and our billing rate and customer satisfaction improve. We will invest in operative efficiency by developing the Financial Quarterly Accountability (FQA), internal information systems and predictability. Innofactor s operating cash flow in the review period of January 1 June 30, 2018, was EUR 0.5 million positive (2017: EUR 3.9 million). Net gearing at the end of the review period was 58 percent (2017: 49.4%). Innofactor's financial stability estimated on the basis of net gearing is good. Innofactor's net sales in the second quarter almost in the same level as last year Innofactor s net sales in April 1 June 30, 2018, were EUR 17,010 thousand (2017: 17,149), which shows a decrease of 0.8 percent.

6 HALF-YEARLY REPORT Q2/ (24) Innofactor's business operations were focused on Finland, Sweden, Denmark and Norway. In January 1 June 30, 2018, approximately 57 percent of the net sales came from Finland, approximately 28 percent from Sweden, approximately 8 percent from Norway and approximately 7 percent from Denmark. Of the net sales in January 1 June 30, 2018, approximately 48 percent came from commercial clients, approximately 29 percent from public sector clients and approximately 23 percent from third sector clients. Innofactor's net sales in the review period of January 1 June 30, 2018, came from the following sources: approximately 54 percent from IT system delivery projects and consulting approximately 23 percent from specialist work based on recurring service contracts, such as smaller customer-specific changes and further development of IT systems approximately 18 percent from services based on recurring service contracts, such as SaaS, cloud and hosting services, and from software maintenance approximately 5 percent from licenses, of which the share of licensing income to third parties was approximately 2,8 percent of the net sales As the ERP system was implemented, the categorization of the net sales was redefined as of January 1, 2018, so the abovementioned shares are not directly comparable to the corresponding figures for last year. Innofactor s 10 largest clients accounted for approximately 27 percent of the net sales during the review period January 1 June 30, Innofactor s operating margin (EBITDA) in April 1 June 30, 2018, was EUR 36 thousand (2017: 567), which shows a decrease of 93.7 percent. EBITDA accounted for 0.2 percent of the net sales (2017: 3.3%). Innofactor s operating loss in April 1 June 30, 2018, was EUR 630 thousand (2017: operating loss 103), which shows a decrease of percent. The operating loss accounted for percent of the net sales (2017: operating loss 0.6%).

7 HALF-YEARLY REPORT Q2/ (24) Acquisitions have been a central part of Innofactor s strategy. Depreciations of intangible rights resulting from acquisitions vary greatly depending on how valuable the customer contracts and technology of the acquired company are estimated to be and also in what kind of schedule the resulting intangible rights will be depreciated. For this reason, the company s view is that instead of the operating profit, the primary measure for profitability should be the operating margin (EBITDA), because it is not affected by the said depreciations. In accordance with IFRS 3, the operating result for April 1 June 30, 2018, includes EUR 507 thousand (2017: 507) in depreciations related to acquisitions, consisting of allocations of the purchase price to intangible assets. Adjusted for the said depreciations, Innofactor s operative business loss for the review period of April 1 June 30, 2018, would have been EUR 122 thousand (2017: operating profit 404), which shows a decrease of percent. Innofactor's financial stability continues to be good Innofactor's balance sheet total at the end of the review period was EUR 57,706 thousand (2017: 63,055). The Group's liquid assets totaled EUR 898 thousand (2017: 377), consisting totally of cash funds. The operating cash flow in the review period of January 1 June 30, 2018, was EUR 452 thousand (2017: 3,937). The investment cash flow was EUR -835 thousand (2017: -1,046). The equity ratio at the end of the review period was 42.6 percent (2017: 43.3%) and net gearing was 58 percent (2017: 49.4%). At the end of the review period, the company had EUR 7,771 thousand in current interest bearing liabilities (2017: 6,654) and EUR 6,833 thousand in non-current interest bearing liabilities (2017: 6,830). The total amount of interest bearing liabilities was EUR 14,604 thousand (2017: 13,484). The return on investment in January 1 June 30, 2018, decreased from the previous year and was percent (2017: 0.6%). The return on equity in January 1 March 31, 2018, decreased from the previous year and was -8.3 percent (2017: -1.0%). The non-current assets in Innofactor's balance sheet at the end of the review period were EUR 39,459 thousand in total (2017: 43,072). Innofactor's gross investments in tangible and intangible assets in the review period of January 1 June 30, 2018, were EUR 668 thousand (2017: 1,046), consisting of normal additional and replacement investments required by growth.

8 HALF-YEARLY REPORT Q2/ (24) The payment of the remaining purchase price for the Cinteros acquisition, EUR 200 thousand, was carried out in the second quarter. Starting from October 1, 2016, Innofactor has activated development costs of its own ERP system. The Nordic ERP system is very important for Innofactor in order to gain future synergies and the long term financial goals. We also believe that the experience we gain while developing and implementing the new Microsoft Dynamics 365-based cloud system will bring us significant competitive edge in customer deliveries. The write-offs on intangible assets were EUR 1,178 thousand (2017: 1,062). In the review period of January 1 June 30, 2018, the company has activated development costs of its ERP system for a total of EUR 528 thousand. Innofactor s research and product development investments remained almost the same In the Innofactor strategy, renewed at the end of 2015, the role of product and service development gained more importance and investments were increased. In the product development during the review period, focus was on renewing existing products and services and continuous further development in order to support the growth of product-based business. Innofactor's research and development costs recognized in profit or loss for January 1 June 30, 2018, were approximately EUR 1,613 thousand (2017: 1,638), which accounts for 4.8 percent of the net sales (2017: 4.8%). The number of personnel in Innofactor is 29 less than a year before Primarily, Innofactor monitors the number of active personnel. The number of active personnel does not include employees who are on a leave of over 3 months. The average number of active personnel in April 1 June 30, 2018, was 597 persons (2017: 609), which shows a decrease of 2.0 percent. The average number of active personnel in January 1 June 30, 2018, was 601 persons (2017: 602), which shows a decrease of 0 percent. In the review period of January 1 June 30, 2018, the net sales per active person was approximately EUR 56.1 thousand (2017: 57.1), which shows an approximate decrease of EUR 1.0 thousand per person. At the end of the review period, the number of active personnel was 588 (2017: 617), which shows a decrease of 4.9 percent.

9 HALF-YEARLY REPORT Q2/ (24) At the end of the review period, the average age among personnel remained the same and was 39.4 years (2017: 39.4). Women accounted for 31 percent (2017: 28%) of the personnel. Men accounted for 69 percent (2017: 72%) of the personnel. Other events in the review period On January 2, 2018, Innofactor announced in a stock exchange release that Marko Lehtonen has been appointed as Innofactor's Chief Financial Officer. On January 24, 2018, Innofactor announced in a stock exchange release that Folkuniversitetet, a Swedish adult educational association, had selected Innofactor as the partner for implementing a Course and Event Management System with the value of the deal being approximately EUR 0.5 million. On January 24, 2018, Innofactor published a flagging announcement pursuant to Chapter 9, Section 10 of the Finnish Securities Markets Act, stating that Tuomo Tilman s ownership of the votes and shares had decreased below five percent (5%). On February 6, 2018, Innofactor announced in a stock exchange release that Innofactor's operating margin (EBITDA) for the fourth quarter (Q4) of 2017 is less than estimated in the Interim Report for the third quarter (Q3) of On February 7, 2018, Innofactor announced in a stock exchange release that the Swedish Teachers Union (Lärarförbundet) selected Innofactor as the partner for a pilot project for membership management, recruiting and membership analysis. The value of the deal is approximately EUR 0.5 million. On March 5, 2018, Innofactor announced in a stock exchange release that the Supreme Administrative Court did not overrule HKL s decision to cancel the procurement decision of November 26, 2015, awarded to Innofactor in a bidding competition concerning the situational information system for the Metro s total security. The framework arrangement of the procurement was intended to remain in effect for a maximum of 15 years. For this total time, Innofactor had stated that the total price according to the tender would be approximately EUR 7 million. On March 16, 2018, Innofactor announced in a stock exchange release that the Legal Register Centre selected Innofactor as the provider of the HAIPA system. The value of the deal is approximately EUR 2 million during 2018 and On June 29, 2018, Innofactor announced in a stock exchange release that the Swedish trade union Kommunal has renewed and expanded its continuous services and support agreement with

10 HALF-YEARLY REPORT Q2/ (24) Innofactor as partner for maintenance and further development of their membership system and related services. The value of the of the agreement is approximately EUR 2.8 million at the minimum and approximately EUR 5.2 million at the maximum in the years Share and shareowners At the end of the review period, s share capital was EUR 2,100, and the total number of shares was 36,188,225. has one series of shares. Each share is entitled to one vote. On April 1 June 30, 2018, the highest price of the company share was EUR 0.88 (2017: EUR 1.80), the lowest price was EUR 0.75 (2017: EUR 1.24), and the average price* was EUR 0.82 (2017*: EUR 1.53). On January 1 June 30, 2018, the highest price of the company share was EUR 1.13 (2017: EUR 1.80), the lowest price was EUR 0.75 (2017: EUR 1.13), and the average price was EUR 0.89 (2017*: EUR 1.44). The closing price for the review period on June 29, 2018, was EUR 0.79 (2017: EUR 1.65). In public trading in April 1 June 30, 2018, a total of 1,497,941 shares were traded (2017: 7,986,133 shares), which corresponds to 4.1 percent (2017: 22.1%) of the average number of shares on the said period. In April 1 June 30, 2018, there were 36,188,225 shares on the average (2017: 36,188,225*). The share trading decreased by 81.2 percent compared to the corresponding period in In public trading in January 1 June 30, 2018, a total of 4,734,382 shares were traded (2017: 12,387,051 shares), which corresponds to 13.1 percent (2017: 35.9%) of the average number of shares on the said period. In January 1 June 30, 2018, there were 36,188,225 shares on the average (2017: 34,481,247*). The share trading decreased by 61.7 percent compared to the corresponding period in * The average number of shares does not include treasury shares. The market value of the share capital at the closing price of EUR 0.79, on June 30, 2018, was EUR 28,733 thousand (2017: 59,711), which shows a decrease of 51.9 percent. On June 30, 2018, the company had a total of 11,932 shareowners (2017: 12,080), including administrative registers. The Board of Directors has the following authorizations:

11 HALF-YEARLY REPORT Q2/ (24) Until June 30, 2019, to decide on a share issue and granting of special rights entitling to shares, concerning a maximum of 7,200,000 new shares (decided by the General Meeting of April 4, 2018); the authorization has not been used. Until June 30, 2019, to decide on a transfer of a maximum of 1,000,000 treasury shares (decided by the General Meeting of April 4, 2018); the authorization has not been used. Own shares The General Meeting of April 4, 2018, authorized the Board of Directors to decide on acquiring of a maximum of 5,000,000 of company's own shares in one or several parts with the company s unrestricted equity. The authorization entitles the Board to deviate from the shareholders' proportional shareholdings (directed acquisition). Own shares may be acquired at the purchase price formed for them in public trading at the day of purchase or at another market price. The number of treasury shares at a time may be, at the maximum, one tenth of the total number of shares in the company. Shares may be purchased to be used in company acquisitions or implementing other arrangements relating to the company's business operations, improving the company's capital or financing structure, as a part of the company's incentive system, or otherwise to be handed over or voided. In connection with the share repurchase, ordinary derivative, stock lending and other agreements may be made in the market in accordance with the laws and regulations. The authorization includes the right of the Board of Directors to decide on all other matters related to the acquisition of shares. The authorization will be valid until June 30, This authorization replaces the Board s earlier authorizations concerning share repurchase. At the end of the review period, the company had no treasury shares. Management of the company complies with the recommendations of the Corporate Governance Code 2015 for Finnish listed companies, published by the Securities Market Association. On April 4, 2018, the General Meeting decided that the number of Board members is four. Of the previous members, Sami Ensio was re-elected, and Pekka Eloholma, Anna Lindén and Risto Linturi were elected as new members. In their organizing meeting held immediately after the General Meeting, the Board of Directors elected Pekka Eloholma as the Chairman of the Board. The General Meeting approved the proposal to appoint the auditing firm PricewaterhouseCoopers Oy as the auditor for the company, with Samuli Perälä, APA, as the main responsible auditor. Innofactor has drawn up a separate Corporate Governance Statement for the financial period of 's entire Corporate Governance and statements are available on the company's web site at:

12 HALF-YEARLY REPORT Q2/ (24) Market outlook and business environment Innofactor s market outlook and business environment in their entirety are described in the financial statement and annual report. There have been no significant changes in Innofactor's market outlook and business environment during the review period nor can any be seen. Short term risks and uncertainty factors Innofactor s operations and finances involve risks that may be significant for the company and its share value. These risks are assessed by 's Board of Directors four times a year as part of the strategy and business planning process. The risks are published in their entirety in the financial statement and in the Annual Report of the Board of Directors. The interim reports only present the changes in short-term risks. Financing risks: In its normal business operations, the Innofactor Group is susceptible to normal financing risks. In total at the end of the review period, Innofactor had approximately EUR 14.6 million in interest bearing debts, which have been taken out to finance earlier acquisitions and working capital. Innofactor has committed itself to the following covenants: equity ratio calculated every 6 months is at least of 40%. Additionally, interest bearing liabilities calculated every 6 months divided by the 12-month operating margin (EBITDA) is a maximum of 2.5. The Innofactor Group's interest-bearing liabilities divided by the 12-month operating margin (EBITDA) on June 30, 2018, exceeded the covenant limit of 2.5 agreed on with the financial institution. However, the financial institution issued a waiver accepting this deviation. The goal of managing the financing risks is to minimize the negative effects of the changes in the financial markets to the result of the Group. Risk management has been centralized to the CFO, who is responsible for the Group's financing and regularly reports to the company's Executive Board, CEO, and Board of Directors. It is possible that, in the future, the Group will not get the financing it needs and this will have a negative effect on the Group's business and its development, especially on making acquisitions. There have been no significant changes in Innofactor's other short-term risks and uncertainty factors during the review period nor can any significant changes be seen. Acquisitions and changes in the Group structure No acquisitions were carried out during the review period. The subsidiary in Denmark, Lumagate A/S, has been merged into Innofactor A/S as of June 1, 2018.

13 HALF-YEARLY REPORT Q2/ (24) Events after the review period There are no events in Innofactor after the review period. Espoo, July 24, 2018 INNOFACTOR PLC Board of Directors Additional information: CEO Sami Ensio, Tel Briefings concerning the Half-Yearly Report January 1 June 30, 2018 A briefing in Finnish concerning the half-yearly report will be held for media, investors and analysts on July 24, 2018, at 10:00 Finnish time, at the company's premises at Keilaranta 9, Espoo. The report will be presented by CEO Sami Ensio and CFO Marko Lehtonen. The corresponding conference call in English will be held at 12:00 Finnish time, and the presenter will be CFO Marko Lehtonen. Please register for the briefings beforehand by sending to ir@innofactor.com. The presentations will be available on Innofactor's web site after the briefing. Distribution: NASDAQ Helsinki Main media

14 HALF-YEARLY REPORT Q2/ (24) Financial statement summary and appendixes January 1 June 30, 2018 (IFRS) Accounting policies Innofactor operates on a single segment, offering software, systems and related services. This interim report has been drafted in accordance with the IAS 34 Interim financial reporting standard. The interim report adheres to the same accounting policies and calculation methods as the last annual financial statement However, as of January 1, 2018, the Group has introduced the new or renewed IFRS standards and IFRIC interpretations published by IASB and mentioned in the accounting policies section of the financial report The principles for calculating the key figures and the calculation formulas have not been changed and they have been presented in an appendix to this report. In addition to the IFRS key figures, Innofactor publishes certain alternative key figures in order to present the financial development of the actual business operations and to improve comparisons between different periods. Acquisitions are a central part of Innofactor s strategy. Depreciations of intangible rights resulting from acquisitions vary greatly depending on how valuable the customer contracts and technology of the acquired company are estimated to be and also in what kind of schedule the resulting intangible rights will be depreciated. For this reason, the company s view is that instead of the operating profit, the primary measure for profitability should be the operating margin (EBITDA), because it is not affected by the said depreciations. In addition to the operating margin, the company also publishes the operative business result adjusted for the abovementioned depreciations, operative business result before taxes, operative business result, and operative business result per share. Depreciations related to acquisitions, adjusted from the above-mentioned key figures, in the period of January 1 June 30, 2018, were EUR 1,015 thousand (2017: 1,015). Other alternative key figures used by Innofactor are equity ratio, net gearing, return on investment, return on equity, and net sales per person. The formulas for calculating the other alternative key figures are presented at the end of this report. Drafting a financial statement in accordance with the IFRS standards requires the management of Innofactor to use estimates and presuppositions, which affect the amounts of assets and debts at the time of drafting the balance sheet and the amounts of earnings and costs for the review period. The application of the accounting policies also requires judgment. As estimates and presuppositions are based on the views held at the time of drafting the statement, they contain risks and uncertainty factors. The actual figures may deviate from the estimates and presuppositions. The figures of the profit and loss statement and the balance sheet are figures for the Group. The figures of the statement have been rounded, so the sum of individual figures may differ from the sum presented.

15 HALF-YEARLY REPORT Q2/ (24) The figures in this interim report have not been audited. IFRS 15 Revenue from Contracts with Customers Innofactor has implemented the IFRS 15 Revenue from Contracts with Customers standard as of January 1, 2018, (mandatory implementation) and applies it retroactively in full. The new standard defines a five-step model for recognizing revenue based on contracts with customers and replaces the current standards IAS 18 and IAS 11 as well as the related interpretations. The standard includes new guidance for license revenue, accounting for costs, and determining transaction price, among other things. It also expands requirements for notification related to revenue from customer contracts. The new standard affects the timing of the net sales from software licenses sold by Innofactor in cases where the licenses are sold in connection with a project delivery. In these cases, a license will be recognized as net sales based on the project's completion percentage and not as one-time net sales like before. Innofactor has adjusted its estimate on the effect of the IFRS 15 standard in the net sales and result. In 2018, it is estimated to be approximately EUR million in total, which is correspondingly estimated to be transferred to EUR thousand Jan 1 Jun 30, 2018 Jan 1 Jun 30, 2017 Change Revenue from services 17,495 17, % Revenue recognized from long-term projects 15,985 16, % Total 33,480 34, % Revenue from services is recognized when the service has been provided and the economic benefit from the service is probable. Man-hour work is recognized monthly as it progresses. Long-term fixed-price projects are recognized using the percentage of completion method when the outcome of the project can be estimated reliably. IFRS 9 Financial Instruments Innofactor has implemented the IFRS 9 Financial Instruments standard as of January 1, The primary effect of the IFRS 9 standard is related to the time of registering anticipated credit losses. The Group is not implementing the standard retroactively. The IFRS 9 Financial Instruments standard has no substantial effect on the Innofactor financial report.

16 HALF-YEARLY REPORT Q2/ (24) Comprehensive consolidated profit and loss statement, IFRS EUR thousand Apr 1 Jun 30, 2018 Apr 1 Jun 30, 2017 Jan 1 Jun 30, 2018 Jan 1 Jun 30, 2017 Jan 1 Dec 31, 2017 Net sales 17,010 17,149 33,480 34,401 65,666 Other operating income Materials ( ) -1,974-2,005-3,781-3,149-6,241 Employee benefits/expenses ( ) -12,552-11,818-24,677-24,088-46,690 Depreciation ( ) ,370-1,346-2,769 Other operating expenses ( ) -2,464-2,778-4,672-5,821-11,515 Operating profit/loss ,461 Financial income Financial expenses ( ) Profit/loss before taxes , ,579 Income taxes Profit/loss for the financial period , ,263 Other comprehensive income Items that may be later recognized in profit or loss: Exchange differences Total comprehensive income , ,007 Earnings per share calculated from the profit attributable to equity holders of the parent: basic earnings per share (EUR) diluted earnings per share (EUR)

17 HALF-YEARLY REPORT Q2/ (24) ASSETS EUR thousand Jun 30, 2018 Jun 30, 2017 Dec 31, 2017 Non-current assets Tangible assets Goodwill 26,011 27,542 26,398 Other intangible assets 6,920 8,679 7,797 Shares and holdings Receivables Deferred tax assets 5,613 5,655 5,668 Non-current assets 39,459 43,072 40,907 Current assets Trade and other receivables 17,349 19,606 16,455 Cash and cash equivalents Current assets 18,247 19,983 17,365 TOTAL ASSETS 57,706 63,055 58,272 Statement of change in shareholders' equity, IFRS SHAREHOLDERS' EQUITY AND LIABILITIES EUR thousand Jun 30, 2018 Jun 30, 2017 Dec 31, 2017 Equity attributable to the shareholders of the parent company Share capital 2,100 2,100 2,100 Share premium reserve Other reserves (+/ ) Fund for invested unrestricted equity 20,322 20,262 20,321

18 HALF-YEARLY REPORT Q2/ (24) Retained earnings 1,081 4,055 2,212 Total shareholders' equity 23,634 26,548 24,764 Non-current liabilities Loans from financial institutions 6,833 6,830 7,280 Deferred tax liabilities 1,612 2,112 1,826 Long term liabilities total 8,445 8,942 9,106 Current liabilities Loans from financial institutions 7,771 6,654 6,948 Trade and other payables 17,856 20,911 17,454 Current liabilities total 25,627 27,565 24,402 Total liabilities 34,072 36,507 33,508 TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES 57,706 63,055 58,272 Statement of change in shareholders' equity, IFRS EUR thousand Share capital Share premium reserve Reserve fund Fund for invested unrestricted equity Own shares Retained earnings Total shareholders' equity Shareholders' equity Dec 31, , ,321 2,549 25,101 Change in calculation principles, IFRS Shareholders' equity Jan 1, , , ,212 24,764 Effect of implementing IFRS 15, Jan 1, Comprehensive income Result for the financial period -1,007-1,007

19 HALF-YEARLY REPORT Q2/ (24) Other comprehensive income: Exchange differences Total comprehensive income ,467-1,467 Shareholders' equity Jun 30, , , ,082 23,634 EUR thousand Share capital Share premium reserve Reserve fund Fund for invested unrestricted equity Own shares Retained earnings Total shareholders' equity Shareholders' equity Dec 31, , , ,278 22,501 Change in calculation principles, IFRS Shareholders' equity Jan 1, , , ,066 22,289 Effect of implementing IFRS 15, Jan 1, Comprehensive income Result for the financial period Other comprehensive income: Exchange differences Total comprehensive income Share issue 4,109 4,109 Purchase of own shares Transfer of own shares Transactions with shareholders in total , ,270 Shareholders' equity Jun 30, , , ,055 26,548 Consolidated Cash Flow Statement, IFRS EUR thousand Jan 1 Jun 30, 2018 Jan 1 Jun 30, 2017 Jan 1 Dec 31, 2017 Cash flow from operating activities Operating profit ,039 Adjustments: Depreciation 1,370 1,346 2,769 Non-cash transactions Changes in working capital: Change in trade or other receivables (+/ ) ,924 Change in trade and other payables (+/ ) 756 3, Interests paid ( ) Interests received

20 HALF-YEARLY REPORT Q2/ (24) Total cash flow from operating activities 452 3,937 4,169 Investment cash flow Acquisition of subsidiaries Investments in intangible and tangible assets ( ) ,046-1,688 Loan receivables paid back Total cash flow from investments ,046-1,488 Cash flow from financing Loans withdrawn ,087 Loans paid ,217-12,560 Interest payments on the hybrid bond Purchase of own shares Total cash flow from financing 371-3,416-2,672 Change in cash and cash equivalents (+/ ) Cash and cash equivalents, opening balance Cash and cash equivalents, closing balance Consolidated Profit and Loss Statement by Quarter, IFRS EUR thousand Jan 1 Mar 31, 2018 Apr 1 Jun 30, 2018 Jan 1 Mar 31, 2017 Apr 1 Jun 30, 2017 Jul 1 Sep 30, 2017 Oct 1 Dec 31, 2017 Net sales 16,470 17,010 17,252 17,149 14,126 17,139 Other operating income Materials ( ) -1,807-1,974-1,144-2,005-1,775-1,317 Employee benefits/expenses ( ) -12,125-12,552-12,270-11,818-10,276-12,326 Depreciation ( ) Other operating expenses ( ) -2,207-2,464-3,043-2,778-2,772-2,922 Operating profit/loss ,

21 HALF-YEARLY REPORT Q2/ (24) Financial income Financial expenses ( ) Profit/loss before taxes ,421-8 Income taxes Profit/loss for the financial period ,137-6 EBITDA Commitments and contingent liabilities EUR thousand Jun 30, 2018 Jun 30, 2017 Dec 31, 2017 Collateral given for own commitments Collateral for rent Mortgages on company assets* 16,958 17,433 17,002 Bank guarantees Other own liabilities Lease liabilities Current lease liabilities Lease liabilities maturing in 1-5 years Total Rental liabilities Current rental liabilities 1,970 1,976 2,007 Rental liabilities maturing in 1-5 years 551 1,369 1,482 Total 2,521 3,345 3,489 Other own liabilities total 3,105 3,973 3,989

22 HALF-YEARLY REPORT Q2/ (24) * Of the mortgages on company assets, EUR 500 thousand was in the company s possession on June 30, 2018.

23 HALF-YEARLY REPORT Q2/ (24) Largest shareholders According to the share register maintained by Euroclear Finland Oy, the share ownership of the 20 largest shareowners at the end of the review period on June 30, 2018, was as follows. Name Number of shares % of share capital 1. Ensio Sami 7,716, % Ensio Sami 5,542, % Minor under guardianship 724, % Minor under guardianship 724, % Minor under guardianship 724, % 2. Ilmarinen Mutual Pension Insurance Company 1,800, % 3. Tilman Tuomo Tapani 1,653, % 4. Laiho Rami Tapani 1,268, % 5. Linturi Kaija and Risto 1,256, % R. Linturi Oyj 489, % Linturi Kaija Anneli 430, % Linturi Risto Erkki Olavi 337, % 6. Ärje Matias Juhanpoika 882, % 7. Mäki Antti-Jussi 877, % 8. Muukkonen Teemu Heikki 522, % 9. Ingman Finance Oy Ab 500, % 10. Järvenpää Janne-Olli 315, % 11. Kukkonen Heikki-Harri 286, % 12. Rausanne Oy 273, % 13. Hellen Stefan Andreas 250, % 14. Laiho Jari Olavi 235, % 15. Mäkinen Antti Vilho Juhani 153, % 16. Heikki Tervonen Oy 153, % 17. Salmela Alpo Jalmari 128, % 18. Muurinen Hannu Olavi 125, % 19. Mandatum Life 123, % 20. Harju Petteri 120, %

24 HALF-YEARLY REPORT Q2/ (24) Formulas for calculating the key figures Operating margin (EBITDA): Operating profit/loss - Depreciations Percentage of return on equity: Profit or loss before taxes - Taxes Shareholders equity Percentage of return on investment: Profit or loss before taxes + Interest and other financial expenses Shareholders equity + Interest bearing financial liabilities Net gearing: Interest bearing liabilities - Cash funds Shareholders equity Equity ratio, (%): Shareholders equity Balance sheet total - Received advances Result/share: Profit before taxes attributable to equity holders of the parent - Taxes Average number of shares on the financial period adjusted after the share issue Shareholders' equity / share: Equity attributable to the shareholders of the parent company Undiluted number of shares on the date of the financial statement Net sales / person: Net sales Active personnel on average during the review period